How Zimbalist’s Worcester study provides a “convenient dodge” for cities looking to subsidize stadiums

One silver lining of the Village Voice canceling all new articles is that it gives me time to write for Deadspin again, and I did so yesterday, with an article investigating how exactly sports economist Andrew Zimbalist, once known as a prominent critic of stadium subsidies, ended up helping Worcester put together one of the biggest minor-league baseball subsidies ever to lure the Pawtucket Red Sox to town.

There’s been lots of speculation about Zimbalist’s role out on the interweb — I forget if it was in a comment thread here or on Twitter that someone suggested he was secretly following orders of his masters in Fenway Park — but the reality turns out to be more complicated, and in some ways more disturbing:

Zimbalist hasn’t exactly changed his tune on the terrible return cities get from stadiums. But he is more willing to grant exceptions, whether on the grounds that additional non-sports development makes for sunnier outcomes, or because minor-league cities are a different beast altogether…

He was able to reach this conclusion, he says, without any bookkeeping trickery: “I tried to at every turn be as straightforward and conservative as I could.” Even if the stadium itself is a money-loser like virtually all others in the past have been, he says his figures showed the city paying off its debts and even turning a small surplus, thanks to all the tax revenues that would pour in from the development alongside the stadium.

Basically, Zimbalist says that he hasn’t changed his tune on stadium subsidies — he still thinks they’re almost always a waste of cash — but the extra development that was promised alongside the stadium should generate lots of tax revenue, so Worcester should come out even. And if that’s development that Worcester could have gotten without spending to build a stadium — which is Worcester-based economist Victor Matheson’s contention, and which would have allowed the city to keep the tax revenue instead of giving it to the PawSox owners — well, that’s not the question Zimbalist was hired to answer: He just had to say whether a new stadium would require new taxes, and he was able to make the math say “nope,” albeit by throwing in some speculation about housing economics similar to what he did with his first big consulting analysis, that of the Brooklyn Nets arena 14 years ago.

“I don’t want to sound idealistic about this—it’s not perfect,” Zimbalist says. “I was not arguing that this is necessarily the best financial outcome that might accrue to the city.”

But does that come across to the public, I ask? Or do people not attuned to the nuances of stadium economics just hear “no new taxes” and leave it at that, even if it’s siphoning off tax money that might otherwise be available for less sportsy purposes?

“I think the point has come across really well,” says Zimbalist. But, he adds, “you ask, do people understand this? I think in Worcester, they don’t even want to understand it. There’s a tremendous amount of excitement about bringing the team there.”

That’s not exactly a “yes, they’re going into this with eyes wide open,” of course, and it raises concerns about what exactly the role of an economist should be: just to do the math on questions being asked by a city government, or to warn them, “Hey, that’s not really the right question to be asking.” Matheson told me he saw Zimbalist’s role as that of “a bit as an enabler … using his credentials and his prominence to basically give cover to the Worcester city council and Ed Augustus to go forward with this project.” And West Virginia University economist Brad Humphreys says he worries that studies like Zimbalist’s only end up encouraging cities and team owners to tack on development projects with harder-to-define impacts just to muddy the economic waters:

“This is a convenient dodge for any municipal government engaging in these sort of things,” says West Virginia University sports economist Brad Humphreys. “There’s not much evidence about the effectiveness of these targeted redevelopment projects that go along with mixed-use retail/residential projects.” That’s a good thing in one way, he says: At least it’s encouraging sports venues to be built with more than a sea of parking lots around them. But whether the ancillary stuff is going to pay for the subsidy, that’s a pie in the sky claim that has no evidence to back it up.”

Anyway, this article ended up being really long and taking a deep dive into not just the economics on ancillary development, but minor- vs. major-league stadium impacts and the ethics of serving as an economic consultant. You can read the whole thing here, and if all goes according to plan, keep an eye out for future articles by me on stadium (and other) topics at Deadspin.

Friday roundup: Worcester stadium subsidy snowballs, Rochester Rhinos look to abandon 12-year-old stadium, old rich white guys continue to control the media

TGIF, but please cut God some slack for this week in stadium facepalms:

  • Members of the Worcester city council say they won’t rush to rubber stamp city manager Edward M. Augustus Jr.’s proposed $100 million stadium subsidy deal for the Pawtucket Red Sox, with public hearings scheduled for next Tuesday and September 5. Augustus, though, says he won’t accept proposed amendments to the deal, only a straight up or down “yes” or “no” vote, because any changes “would significantly impact our ability to deliver this project on time and could lead to unintended consequences.” So, basically, he’s asking for a rubber stamp, though the council still always has this one available.
  • Worcester city councilmembers might also want to check out this article from WBUR about how throwing large sums of money at minor-league baseball stadiums has worked out in other cities like Nashville, Durham, and El Paso. Representative quote, from Nashville City Councilor John Cooper: “Our overall success as a tourist destination is clearly not part of this baseball project. Nobody here thinks of the minor league baseball park as driving much of that.”
  • Meanwhile, the Worcester stadium deal has already created a cascade effect, with the owners of the Boston Red Sox‘ single-A team, the Lowell Spinners, asking when they’ll get some public money too. “I love Lowell, and I believe in Lowell,” Spinners owner Dave Heller said after meeting with Massachusetts state economic development officials. “I’m excited about the future in Lowell and investing here. I want to make sure we can take advantage of any incentives that are available from the state.” Spoken like a true Vercotti brother.
  • The GM of the New York Islanders and the owner of the Los Angeles Clippers both say they’re optimistic about getting the arenas built that they are lobbying to get built, and they both got articles in major news outlets (Newsday and CBS Sports) about their optimism. Normal non-rich humans who would like to express their pessimism about the arena projects can write a letter to the editor — ha ha, just kidding, CBS Sports doesn’t publish letters to the editor, go write an angry tweet or something.
  • The former owners of the USL Rochester Rhinos got $20 million from the state of New York for a new stadium in 2006, but now the new owners say they’re looking to move to a newer stadium in the suburbs, because people would rather watch the Premier League on TV than sit in a 12-year-old stadium or something? (And this after they narrowly avoided getting evicted!) Anyway, what the hell is it with upstate New York cities not thinking to lock their minor-league teams into long-term lease deals? Is it something in the water?

Nine out of ten sports economics experts think Worcester’s stadium deal is awful, and the tenth is the guy who helped design it

I’m still unpacking the exact details of the Pawtucket Red Soxletter of intent to move to Worcester and the $100-million-ish in subsidies it would include — I see the team would get to establish a $1-per-ticket surcharge on city-run events at the stadium and use the cash for its own future capital projects fund, for one thing, while the Worcester Telegram notes that the deal would include $5.6 million in future property-tax breaks for the builders of the larger development project. But Grant Welker of the Worcester Business Journal figured out a quicker path to evaluating the deal: Send copies of the stadium documents to ten sports economists and stadium experts (including me) and ask what they thought of the plan. Which led to the sentence of the week, if not the year:

Of those experts, the only one who spoke positively about the deal was the Smith College professor who was hired by the city to judge the economic viability of the offer to the PawSox.

Yep, that’s right: Nine out of ten sports stadium experts agree that Worcester is getting hosed, and the tenth is none other than Andy Zimbalist, stadium skeptic turned sometime stadium huckster, who is the guy who helped Worcester come up with its plan in the first place. Let’s run through a sampling of quotes:

  • Nola Agha, University of San Francisco: “It virtually never works.”
  • Joel Maxcy, Drexel University: “There’s just mountains now of economic evidence that the payoff that’s promised and what actually happens is far different. … If it were a private person, you would never take such a nonsensical bargain.”
  • Robert Baade, Lake Forest College: “The idea that this is going to serve as a catalyst for economic development, which is the hope – and I emphasize the word hope – is misguided. … Your community could think of all other ways to spend the money with better economic return than a minor league baseball team”
  • Victor Matheson, College of the Holy Cross (which is in Worcester): “This is an extraordinarily expensive stadium. … They seemed to be smarter than that. I’m extremely surprised that [the city’s cost] is as large as it is.”
  • Andrew Zimbalist, Smith College: “If you can do something like this that was culturally and socially positive and at least break even, it made sense to go forward.”
  • John Solow, University of Iowa: “There’s a great deal of consensus among sports economists of all political stripes that this is not a good thing for local governments to be doing.”
  • Michael Leeds, Temple University: “I really, really don’t see it. … You’re counting on something [the new development generating enough tax revenue to pay off the stadium] that’s not very likely to happen, and you better have a Plan B in place.”
  • Allen Sanderson, University of Chicago: “Overwhelmingly, the fannies in the stands are local. They’re choosing to spend a day or an evening at the ballpark instead of at the ball or other entertainment options.”
  • Neil deMause, guy with a blog: “Worcester’s city leaders haven’t just outbid Pawtucket, they’ve ladled on goodies like they’re trying to buy Larry Lucchino’s love. Assuming they can get past all the legislative hurdles, it should be enough to get the city a pro sports team, but it’s tough to see spending more than $100 million in tax kickbacks and state infrastructure subsidies on a team that you could buy outright for $20 million as smart bargaining.”

Zimbalist’s argument, it appears, is that while the stadium itself would be a money pit, getting that additional $100 million in hotels and housing and whatnot would generate enough new money to make the whole deal worth it. That assumes, of course, that nobody would be willing to build hotels and housing and whatnot without a stadium — which is a pretty odd assumption, since it’s not the presence of a Triple-A baseball team that’s going to make anyone want to live or even stay overnight in Worcester.

And also, those with long memories will recall that this is the exact same argument that Zimbalist used on a previous paid gig, for then-New Jersey Nets owner Bruce Ratner, in which he determined that a new Brooklyn arena would lose money for the public, but taxpayers would make it back from all the new housing that would go up alongside it. At the time, I also called for a second opinion from another sports economist, in that case Rod Fort of Washington State University (he’s now moved on to the University of Michigan, who noted this:

“I would never have undertaken this exercise. In essence, Andy is trying to forecast 33 years hence, and he’s forecasting housing markets, which there are other people spending all their waking moments on. What you see is assumption after assumption after assumption after assumption.”

In short: Housing economics is complicated (for starters, new residents come with new costs for things like schools and other public services, not just new tax revenues), and Andy Zimbalist is not a housing economist, but that hasn’t stopped him from telling cities that they’ll be fine sinking money into stadiums and arenas so long as there’s a housing component, and Worcester just took the bait. Presumably it’s bait that city officials knew Zimbalist was going to offer, and that’s exactly why they hired him, but that still doesn’t make the whole thing stink much less.

Worcester proposes $100m-plus in subsidies to steal PawSox from Rhode Island, now what?

Earlier this summer, the state of Rhode Island rejected a request by the owners of the Pawtucket Red Sox to fund a new stadium in Pawtucket. On Friday, the team owners announced their decision: They will be moving the franchise to Worcester, which will build a new stadium with public funds that the team will be repaying with rent and other team-related revenues, in a major win for the Massachusetts city.

All of that previous paragraph was reported in various media over the weekend. Virtually none of it is 100% true.

Let’s start where we left off: With the June legislative vote of the Rhode Island legislature, which actually approved $38 million in state and city subsidies toward a new Pawtucket stadium. What it didn’t do was promise that the state would cover any shortfalls in tax revenues set to pay off the stadium bonds, which could have raised interest rates to the point that the PawSox owners got snippy about it.

At the time — really, at just about any time in the last three years — Worcester was out there as a potential relocation threat, but nothing more specific than that, as nobody had publicly talked about how to pay for building a stadium there. That’s what changed on Friday, as the PawSox owners and the city of Worcester signed a “letter of intent” to build a $90 million, 10,000-seat stadium as part of a $200 million mixed-use development with hotels, apartments, and retail.

As for how it would all be paid for, here’s what the news media — at least those not too busy declaring the deal an “economic grand slam” for Worcester — is reporting it:

  • The city would borrow $100.8 million, while the team owners would kick in $6 million in cash. Of the city’s portion, rent payment from the team will pay for $30.2 million over 30 years — it’s not clear from the reporting if that’s $30.2 million in total rent payments, or enough rent payments to pay off $30.2 million in borrowing, which would be a whole lot more. (Just like $30.2 million in mortgage payments wouldn’t be enough to pay of a $30.2 million house, unless you got a no-interest loan.)
  • Assuming it’s the latter, that still leaves $70.6 million to be repaid by new tax revenues from the development — in other words, our old friend tax increment financing. But this is a TIF with a twist: Instead of just kicking back tax revenue from the stadium itself, the project would come packaged with that pile of hotels and housing and retail space — all of which would pay property (and other? reporting is unclear) taxes not to the city treasury to pay for services for all this new development, but toward the stadium’s construction debt.
  • The state would also kick in $35 million for a parking garage and “unspecified infrastructure improvements,” according to the Worcester Business Journal.

That brings the total public subsidy to at least $105.6 million, and possibly closer to $120 million if those rent payments are actual dollar amounts on the team owners’ checks. Either way, I’m pretty sure that this would be easily the largest public subsidy for any minor-league baseball team ever, and would blow away Rhode Island’s offer, even if that state hadn’t capped its debt responsibilities in the final bill.

So Worcester has just bought itself a really expensive Triple-A team, right? Not quite yet: The city council still needs to sign off on the whole mess, and while Massachusetts Gov. Charlie Baker is in favor of the state garage money, it may yet require state legislative approval as well. So notwithstanding all the talk about stadium construction starting next July, there may be some bothersome hearings and votes and such yet to go.

Officials in Rhode Island, and Pawtucket, meanwhile, are understandably steamed that after approving what they thought was a pretty good offer in June, the next thing they heard from PawSox officials was a letter on Friday saying, “Sorry, we found someone with more money.” PawSox CEO Larry Lucchino, meanwhile, put the blame squarely on Rhode Island for not scurrying to cough up more money more promptly, as it is the state’s job to do:

“As I said in our meeting on Monday, Aug. 6, ‘Where have you been?’ That’s not directed at your personally, but at all of those involved in the process.”

“The state’s delays cost Pawtucket dearly,” the baseball executive said.

In the end — if this is the end, which it probably isn’t yet — it’s an indication of how negotiating with minor-league team owners is exponentially harder than doing so with major-league ones, because there’s a near-infinite number of equally middling-sized cities to move to. Pawtucket’s best hope was that no cities within easy reach of Boston (where the Red Sox want their top minor-league teams close by) would take the bait and deliver a suitcase full of cash to Lucchino’s door; instead, Worcester came up with the fattest suitcase in history. Score one against Roger Noll’s theory that the tide is turning.

Rhode Island would have to siphon off $77m in future taxes to keep PawSox bondholders happy

As the Pawtucket Red Sox owners continue to mull over whether $38 million in free money is enough not to throw back in the face of Rhode Island taxpayers, the state treasurer’s office has issued a report estimating that — you know what, let’s start with how WPRI is reporting it, then backtrack to explain what it actually means:

The new PawSox stadium and its surrounding area will need to generate about $5 million a year in state and city tax revenue to cover borrowing for the ballpark under newly enacted legislation, according to a revised analysis.

In a memo issued Monday, General Treasurer Seth Magaziner’s staff said their current forecast indicates about $3.2 million in tax revenue will be needed to make debt payments on the tax-backed borrowing for the project. In addition, bondholders will want to see about $2 million more in tax revenue generated on top of that to ensure some cushion.

So that’s not actually an annual cost of $5 million, mind you — that would be an insane interest rate on $38 million in public stadium debt. (12.8%, if this thing is working right.) Rather, it’s just Magaziner’s estimate of how much excess revenue the stadium would have to promise before bondholders would not get cold feet about buying something based entirely on future property tax revenues from development that hasn’t happened yet.

This is one of the big problems with tax increment financing projects, as the PawSox stadium would be: You’re basically drawing an arbitrary line around your development and declaring that any increase in property taxes within that zone will be siphoned off and used for paying for the development. Draw the line too large, and you end up including taxes from property that would have been developed anyway without the new project, and so cannibalizing money that the public treasury could otherwise keep; draw the line too narrowly, and you risk a shortfall in revenues. (Bondholders, being only concerned about getting a return on their investment and not on what’s good public policy, are naturally more alarmed about the latter prospect.)

So the good news is it wouldn’t really cost Rhode Island $5 million a year (which comes to a present value of almost $77 million, if this thing is working right) to pay off stadium bonds — any excess money could be kept by the Pawtucket Redevelopment Agency and used for something else. The bad news is that the size of the TIF district whose property taxes will be redirected to the PRA is probably going to have to be really freaking huge in order to placate bondholders — which means it’s extremely likely that taxes that have nothing to do with the stadium will be redirected to help pay for it. That’s exactly what Rhode Island House Speaker Nicholas Mattiello promised wouldn’t happen, but, well, “bait and switch” is such an ugly phrase.

Rhode Island legislature agrees to hand over $38m in tax money to PawSox, now has to hope team owners turn it down

The Rhode Island legislature approved a funding plan for a new Pawtucket Red Sox stadium on the eve of its final session of the year Friday night, with the state house voting it in 53-13 in the morning, and the state senate following suit a little after 10 p.m. by a 26-6 margin. This would seem to finalize the $38 million in state and city subsidies that the team owners have been seeking to replace 76-year-old McCoy Stadium — except that the team owners still haven’t committed to accepting it:

The team released a noncommittal statement after the vote Friday night.

“We saw this proposed legislation for the first time only this morning, so it would be premature to comment further without having studied its terms and ramifications,” the team said. “We will continue to work with the city of Pawtucket to see if this new proposal is feasible, viable, and permissible.”

Who says no to $38 million? Someone seeking $48 million, certainly, but that doesn’t appear to be quite what’s going on here, since the PawSox owners already okayed a $38 million contribution previously. One possibility is that they’re concerned they could end up on the hook for more than the $45 million they were willing to put in (with the help of naming rights money and any other new stadium revenues, of course, since they’d get all those and the city and state would get squat), as a Senate Fiscal Office analysis projected that capping the public’s commitment to repay the stadium bonds could result in higher interest rates that would increase the total borrowing cost by $55 million to $87 million, which ain’t chicken feed.

Still, let’s not let the fact that Larry Lucchino & Friends think this is a crappy deal for them lull us into a false sense of security that this isn’t also, and much more certainly, a crappy deal for the Rhode Island public. State and city taxpayers are about to be forced to draw a circle of indeterminate size around a PawSox stadium site, and agree to hand over all property taxes from inside the circle to the team’s owners; if that doesn’t come to $38 million, the city development authority will have to find a way of making up the shortfall. And all this only because the team owners keep making vague threats to move to a city that hasn’t revealed publicly any offer at all in the way of stadium subsidies. And all over the objection of local residents who appear to overwhelmingly oppose the plan, just because in eastern states like Rhode Island, elected officials can broker stadium deals like this without fear of citizens staging a voter referendum to overrule them.

That’s bidding against yourself in the worst way — and all for a team that the city could just go out and buy (or buy a replacement for, if the current owners really insisted on moving) for a fraction of the cost of helping build a new stadium, something that on the minor-league level is actually allowed. The best hope now is that by tweaking the financing of the subsidy, the legislature will have made it equally awful for the team owners, creating a kind of poison pill to save elected officials from themselves. That’s a slim reed to cling to, but if you’re a Rhode Island resident — or a fan of historic ballparks, of whom there are more than a few — right now it’s all you’ve got.

Pawtucket mayor makes move threat for the PawSox, for the PawSox have no voices

The Rhode Island House Finance Committee met yesterday to discuss House Speaker Nicholas Mattiello’s bill to make the city instead of the state cover any funding shortfalls for a new Pawtucket Red Sox stadium, so what did they resolve about the undecided aspects of the bill? How much higher interest the state would have to pay on bonds without a state guarantee of repayment? Nope. How big a tax increment financing district would be needed to siphon off tax revenues to pay the public’s $38 million in costs? Nuh-uh. But we did get lots of Pawtucket Mayor Donald Grebien threatening that if Rhode Island didn’t approve the bill — whatever the bill is — the team would move to Worcester:

“They are still committed to listening and hearing what the bills are, but Worcester is on the table,” Grebien told reporters before the hearing on where the team stands. “We need to send them a clear signal … My instincts are: absolutely they want to be here.”

“I am trying to make sure we have a bill so we can have that conversation,” Grebien said. “I can tell you, if we don’t have a bill, they are gone.”

The PawSox owners have been very careful not to openly threaten to move to Worcester, though they did have one of their lobbyists declare sadly that without a new stadium in Pawtucket, Worcester might just make them an offer they couldn’t refuse. Worcester officials have not made any specific public offers at all so far, and PawSox officials didn’t show up at the hearing — they’ve been careful not to say anything at all about Mattiello’s plan, because playing hard to get is always just adorable — so it was left to Grebien to speculate wildly about what exactly was being threatened:

Rep. Antonio Giarrusso, R-East Greenwich, asked Grebien about reports that Worcester was asking the team to only pay $18 million of the stadium costs.

Grebien said the team was not trying to pit one city against the other and had not told him what Worcester’s offer was.

Ah, mayors willing and ready to blackmail themselves. Where would we be without them?

Friday roundup: The news media are collectively losing their goddamn minds edition

It’s a full slate this week, so let’s do this!

Rhode Island house speaker now says he’ll okay $38m in PawSox stadium subsidies if he can make the city cover any state revenue shortfalls

If you’re a close follower of Rhode Island state politics — we’ve gotta watch something now that Roseanne has been canceled, right? — you’ll recall House Speaker Nicholas Mattiello as the guy who keeps declaring Pawtucket Red Sox stadium plans dead because the people of Rhode Island hate it. Though he’s also the guy who kept holding hearings on a stadium proposal anyway, and now he’s the guy who decided that giving $38 million to a minor-league sports team is just peachy so long as the money is capped there:

Mattiello’s plan — its fine print is still being written — will follow the contours of ballpark legislation passed by the Senate earlier this year, he told reporters Tuesday, but remove state backing from more than $80 million in proposed borrowing.

“I think the most important thing that we can say about it is, once we set up the framework, that there is no state guarantee,” Mattiello said. “The state of Rhode Island taxpayers will not be responsible for any of the debt associated with that project.”

The new plan goes like this: The stadium would still cost $83 million to build, which would be paid back by a combination of the team, state, and city. But the state’s share would be limited to tax money from a tax increment financing district around the stadium — in other words, increased property taxes would be kicked back to pay for the stadium construction instead of going into the state’s coffers like it normally would.

This would indeed solve one of the big problems with TIFs — that sometimes they don’t actually generate any revenue and local governments are left holding the bag — but not the more fundamental problem, which is that they often just cannibalize money that the public would be getting anyway, if, say, a new stadium means that a bunch of development gets built there instead of across town.

Anyway, with the state limiting its exposure under Mattiello’s plan, any TIF-related shortfall would have to be covered by … who would it have to be covered by, exactly?

“If revenue comes up short, the Pawtucket Redevelopment Agency will have to figure out how to deal with it,” Mattiello said.

Oh, excellent, so if the state can’t find enough taxpayers to pay its stadium bills, then city taxpayers will have to pick up the slack. I’m so glad that Rhode Island’s elected officials are there to be watchdogs of the public interest, aren’t you?

Friday roundup: Warriors rail stop turns pricey, West End stadium undead again, Montreal mayor meets with would-be Expos owners

Superbrief mode today:

  • Expanding light-rail service to the Golden State Warriors‘ new arena is now expected to cost at least $62 million, which is a lot for Muni Metro, though not for some other transit systems. The Warriors owners are kicking in $19 million, but the rest will be funded by tax money from the arena district, which may or may not be enough to cover the entire nut. Tim Redmond saw this coming.
  • F.C. Cincinnati owners are officially pivoting back to the West End stadium site that it had declared dead last month after not getting offered enough property-tax breaks on the land. How come? Team CEO Jeff Berding said of the other two options, Oakley is “not as close to the urban core as desired,” and the team couldn’t secure land in Newport, Kentucky. Sounds like the West End has the club over somewhat of a barrel, which it should be able to use to ensure the team pays full property taxes, at least, though some residents may be more concerned about keeping out a stadium entirely over fears it will further gentrify their neighborhood.
  • The mayor of Montreal is meeting today with an ownership group that wants to bring a new Expos MLB team back to town. “We don’t need a cent from the city of Montreal, but we need a little help,” prospective co-owner Stephen Bronfman said earlier this week; your guess is as good as mine what that actually means.
  • Minnesota taxpayers have spent $1.4 billion on new or renovated sports venues over the past 20 years, if anyone is counting.
  • The Pawtucket Red Sox‘ stadium demands continue to be stalled, if anyone is keeping track.
  • “A deputy in one of Russia’s 2018 FIFA World Cup host cities has claimed that a latest inspection by the world’s footballing body has neglected a missing column at a newly built stadium.” You’ve just got to read the whole Moscow Times article now, don’t you?